China Tries To Build Its Domestic Market

With the end of the Chinese New Year the sleeping giant is ready go back to work. Kicking off the beginning of the year are several important economic reports, released by the Chinese government.

The Chinese manufacturing indexes grew in January as China withstood weaker exports driven by Europe's continuing debt crisis and a government-induced property slowdown. With austerity the word of the day throughout Europe the demand for imports lessens.

The government's purchasing managers' index increased to 50.5 from 50.3 in December, exceeding the median forecast, the 50 level that divides expansion from contraction. In a separate report from HSBC Holdings Plc PMI rose to 48.8. The data may have been distorted by a weeklong Lunar New Year holiday

Premier Wen Jiabao yesterday reiterated his government will fine-tune economic policies as needed after the central bank held off on a reduction in bank-reserve requirements that some analysts had forecast for January. Indexes for export orders, imports and employment in the official PMI showed a deeper decline, underscoring an International Monetary Fund warning last week that the euro area's crisis could trigger another global recession.

The PMI section on exports fell but Chinese factories noted an increase in their domestic business, as the world's second-largest economy remained robust despite the government's sustained campaign to cool the property sector.

Global demand for Chinese exports fell in January as global economic uncertainty continued to hurt consumer confidence.

The latest government data showed China's new export order index fell to 46.9 from 48.6 in the previous month. The imports index also dropped to 46.9 from 49.3 in December, showing that domestic demand were slowing, which seems contrary to government statements.

China has been trying to boost demand for its products at home in an effort to rebalance its economy internally.

The key thing really for the Chinese economy is domestic demand, a government spokesman noted.

Encouraging internal demand has brought some challenges along with it. Consumer prices in China rose sharply in the first half of last year. At the same time, there were fears about the formation of asset bubbles within the country.

Signs of strength in the Chinese economy have prompted the government to take an incremental approach to policy relaxation rather than a more aggressive stimulus. As a result, government agencies implemented measures to contain consumer price inflation and cool down the nation's property market. Economists said these measures have started to take effect and may slow growth in short term.